Antimonopoly & Unilateral Conduct

Last verified on Tuesday 18th April 2017

European Union

Thomas Graf and Alexander Waksman
Cleary Gottlieb Steen & Hamilton LLP

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?

  2. Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits abusive conduct by companies that hold a dominant position. For an infringement of article 102 TFEU to arise, four conditions must be met: (i) the entity at issue must qualify as an ‘undertaking’; the undertaking must hold a dominant position on a relevant market; (iii) the undertaking’s conduct must qualify as an abuse; and (iv) and the conduct must affect trade between member states.

    The European Commission’s Guidance paper on abusive conduct describes the analytical framework that the Commission applies in principle in abuse of dominance cases (Guidance on the Commission’s enforcement priorities in applying article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertaking (the Guidance Paper)). Guidelines and interpretative notices on other matters, such as the Commission’s Market Definition Notice, are also relevant for the application of article 102 TFEU.

    The procedural rules for the application of article 102 TFEU are set out in Council Regulation 1/2003 and the Commission’s Implementation Regulation. 

  3. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?

  4. At the EU level, the European Commission (the Commission) is the body with the power to investigate and sanction abuses of dominance. In parallel, national competition authorities of individual member states are competent to apply article 102 TFEU as long as the Commission has not opened a formal investigation on the same matter.

    Monopoly power

  5. 3.

    What role does market definition play in market power assessment?

  6. Market definition serves as an analytical framework to assess market power and competitive effects. Certain types of abuse (eg, tying and bundling or refusal to supply) envisage market power and anti-competitive effects arising in different markets. In such cases, more than one market may need to be defined: see the response to question 46.

    While market definition represents an important element of the competitive analysis, it does not set an absolute limit to that analysis. Competitive interaction can take place in a continuum that crosses market boundaries. Depending on the case, competitive constraints outside a defined market therefore must be taken into account. 

  7. 4.

    What is the approach to market definition?

  8. The Commission Market Definition Notice provides guidance on the Commission’s approach to market definition for all areas of EU competition law, including the application of article 102 TFEU.

    Market definition involves delineation of both relevant product and geographic markets. A relevant product market comprises all those products or services that are substitutable from either the demand side or supply side. Similarly, a relevant geographic market covers those locations that are either substitutable from the demand or supply side.

    Substitutability is assessed by the hypothetical monopolist test known as the ‘SSNIP’ test (referring to a ‘small but significant non-transitory increase in price’). The SSNIP test asks whether a hypothetical monopolist could profitably impose a 5 to 10 per cent permanent price increase over the candidate products without a sufficient number of consumers at the margin switching to other products to render the price increase unprofitable.

    ‘Demand-side substitutability’ measures the ability of consumers to switch their consumption to alternative products in the case of a small change in relative price. ‘Supply-side substitutability’ measures the ability of suppliers to switch production to the products under consideration in response to small change in relative price. Either of these forms of substitution can provide effective competitive constraints. When either is present, the relevant market ought to be widened, although the Commission considers demand-side substitution to represent the most effective disciplinary force (Market Definition Notice, para. 13).

    A number of EU Court judgments have discussed basic principles of market definition in the context of article 102 TFEU cases. But some of these cases are relatively old and remain quite general. The Commission’s decisional practice and EU Court judgments in other areas of EU competition law, including merger control, provides additional insight that is also relevant for article 102 TFEU cases and market delineation in specific industries.    

  9. 5.

    How is market power or monopoly power defined?

  10. EU Court judgments and the Guidance Paper describe dominance as ‘a position of economic strength’ that confers on a company ‘the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of its consumers’ (Guidance Paper, para. 10; Case C-27/76 United Brands v Commission EU:C:1978:22, para. 65; Case 85/76 Hoffmann-La Roche & Co. v Commission EU:C:1979:36, para. 38).

  11. 6.

    What is the test for finding of monopoly power?

  12. There is no single approach to identifying dominance that is applied universally in all abuse of dominance cases. Rather, several indicators of dominance have developed incrementally in the case law of the EU Court. The Guidance Paper classifies these indictors into categories relating to:

    • constraints imposed by competitors (ie, an assessment of market structure and market shares);
    • constraints imposed by the threat of expansion and entry; and
    • constraints imposed by the bargaining strength of customers.

    These categories are discussed in response to questions 8 to 17.

  13. 7.

    Is this test set out in statute or case law?

  14. The test is set out in case law.

  15. 8.

    What role do market shares play in the assessment of monopoly power?

  16. Market shares represent an important element of the dominance analysis, although high market shares are not determinative alone for a finding of dominance. In volatile or bidding markets, for example, a snapshot of market shares at a single point in time may fail to capture competitive constraints imposed by competitors. Hence market shares over time need to be considered. In addition, the relevance of market shares may depend on other factors, such as barriers to entry, buyer power, or the importance of innovation in the market. 

  17. 9.

    Are there defined market share thresholds for a presumption of monopoly power?

  18. The EU Court has established a (rebuttable) market share presumption for dominance pursuant to which a company is assumed to be dominant, if it holds a market share of 50 per cent or more in the relevant market (Case C-62/86 AKZO Chemie v Commission EU:C:1991:286, paragraph 60. See also Case T‑321/05 AstraZeneca v Commission EU:T:2010:266, para. 288). 

  19. 10.

    How easily are presumptions rebutted?

  20. The presumption of dominance for firms with market shares above 50 per cent is not universally acknowledged, and may not be applied in every case. Thus the General Court in Hilti described high market shares as providing an ‘indication’ of market power, rather than establishing a legal presumption (Case T-30/89 Hilti v Commission EU:T:1991:70, para. 92). In Hoffmann-La Roche the Court of Justice held that a 51 per cent share of one of the markets under consideration in a single year was ‘insufficient evidence of the existence of a dominant position’ (Case 85/76, EU:C:1979:36, para. 58).

    The UK Competition Appeal Tribunal, hearing an appeal against a finding of abuse under EU competition law, declined to presume dominance where the defendant had a market share of 89 per cent, since market share would not capture the true competitive landscape in the years following the loss of the defendant’s statutory monopoly (National Grid v Gas And Electricity Markets Authority [2009 CAT 14]).

    In online services, a question has arisen to what extent usage shares for free services can indicate market power. In Microsoft/Skype and Facebook/WhatsApp, the Commission held that high usage shares for free services are not a good proxy for market power. This was confirmed by the General Court in Cisco and Messagenet v Commission.

    In practice, the European Commission typically relies not solely on market shares for establishing dominance, but considers markets shares in combination with other factors, such as entry barriers, buyer power, and development of market shares over time. 

  21. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?

  22. There is a paucity of article 102 TFEU decisions at the EU level where companies with high market shares have not been treated as dominant. This may be due to the fact that high market shares are generally not used in isolation but in conjunction with other factors to demonstrate that a company is dominant. Cases where companies are found not to hold a dominant position moreover may be closed without formal decisions. In merger cases, there are examples of the Commission finding no concerns despite relatively high shares.

  23. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?

  24. The Commission considers that dominance is unlikely if a firm’s market share is below 40 per cent (Guidance Paper, para. 14). In British Airways, the Commission found British Airways to hold a dominant position in the UK with a market share of just under 40 per cent (39.7 per cent). Despite the relatively low market share, dominance was established on the basis that British Airways’ market share was more than twice as large as the combined shares of its four largest competitors, it held substantially more slots at Heathrow and Gatwick airports than other airlines, and it offered the largest range of flights into and out of the UK (Case T-219/99 British Airways v Commission EU:T:2003:343, paras. 175-226).

  25. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?

  26. A market share-based presumption of dominance is inapplicable where competitors are able to meet rapidly the demand from customers who want to switch away from the firm with the largest share (Case 85/76 Hoffmann-La Roche & Co v Commission EU:C:1979:36, para. 41). As recognised in the Guidance Paper, ‘an undertaking can be deterred from increasing prices if expansion or entry is likely, timely and sufficient’ (Guidance Paper, para. 16).

    In assessing this likelihood, the Commission considers barriers that prevent timely entry or expansion. These can take the form of legal barriers (such as legislation conferring a statutory monopoly, or intellectual property rights: see, for example, Case 30/87 Corinne Bodson v Pompes funèbres des régions libérées EU:C:1988:225), or barriers such as economies of scale or scope (Case C-27/76 United Brands v Commission EU:C:1978:22, para 122), technological advantages (Case 85/76 Hoffmann-La Roche & Co. v Commission EU:C:1979:36, para 48) or network effects (Case COMP/39.530 Microsoft (Tying), Commission Decision of 16 December 2009, para 420).

  27. 14.

    Can the lack of entry barriers negate a finding of monopoly power?

  28. Yes, see the response to question 13.

  29. 15.

    What kind of barriers to entry are typically considered in the analysis?

  30. See the response to question 13.

  31. 16.

    Can countervailing buyer power negate a finding of monopoly power?

  32. Customers with sufficient countervailing bargaining strength can prevent a company from exercising market power. Such buyer power, however, will not necessarily negate a finding of dominance where a strong buyer is only able to protect itself or a limited segment of customers, but not the entire market (Guidance Paper, para. 18).

  33. 17.

    What if consumers can easily switch between suppliers?

  34. The ease with which customers can switch is a relevant consideration in the competitive analysis. A competitive constraint may be exercised not just if individual buyers hold buyer power, but also where a sufficiently large number of customers would defeat price rises by switching to alternative supply sources. It is important to note that what matters in this analysis is the behaviour of customers at the margin, rather than the behaviour of average customers.

    The ease of switching is also relevant in the analysis of barriers to entry. If customers can easily switch suppliers that facilitates entry. It also counteracts possible barriers, such as notably network effects. Thus, in Microsoft/Skype and Facebook/WhatsApp, the Commission found that the ease with which users could switch between services mitigated network effects.

  35. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?

  36. The categories of factors indicating dominance are not closed. That said what matters are competitive factors that impact a firm’s market power. Non-competitive factors are not considered.

    Relevant competitive factors may include example a firm’s spare production capacity (Case 85/76 Hoffmann-La Roche & Co. v Commission EU:C:1979:36), financial strength (Case T‑321/05 AstraZeneca v Commission EU:T:2010:266, para. 286), and first mover status (Case T‑321/05 AstraZeneca v Commission EU:T:2010:266, para. 283).

    In the area of patent licensing, a patent owner may be constrained by the patent portfolios of licensees if it is vulnerable to countersuits in the event of overcharging for its own patents.

    In the case of a multi-product firm that serves the same buyers in different product markets, buyers may constrain the firm’s ability to charge supra-competitive prices in a dominant market by threatening to switch their purchases in non-dominant markets.

  37. 19.

    Are any entities or sectors exempt from the antimonopoly regime?

  38. Entities which do not qualify as ‘undertakings’ are not subject to article 102 TFEU. The concept of ‘undertaking’ however is interpreted broadly. It encompasses every entity engaged in an economic activity, regardless of its legal status or the way in which it is financed (See Case C-41/90 Hofner and Elser v Macrotron GmbH EU:C:1991:161, para. 21).

    That said, public authorities do not qualify as undertakings when performing the essential functions of state. In Eurocontrol, the exercise of powers relating to the control and supervision of air space were not of an economic nature (despite the fact that Eurocontrol collected route charges) and it did not therefore constitute an undertaking (Case C-364/92, ECLI:EU:C:1994:7).

  39. 20.

    Can companies be deemed to hold collective monopoly power?

  40. Collective dominance may arise in an oligopolistic market where a number of firms together hold a dominant position, and the abuse would consist in one or more of the firms taking part in a tacitly agreed collective exclusionary or exploitative strategy.

  41. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?

  42. While such situations can in principle arise, cases based on a theory of abuse of collective dominance have been rare (the principal example is Joined Cases C-395 and 396/96 P Compagnie Maritime Belge Transports v Commission EU:C:2000:132). 

  43. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?

  44. The Commission’s approach to market definition is set out in the Market Definition Notice, and dominance is addressed in the Guidance Paper.

    Abuse of monopoly power

  45. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?

  46. Holding or acquiring a dominant position is not in itself unlawful under EU competition law, but dominant firms are subject to a ‘special responsibility’ not to impair undistorted competition in the EU. A dominant company infringes article 102 TFEU if it abuses its dominant position to restrict or distort competition.

    The term ‘abuse’ has been defined as behaviour by a dominant undertaking ‘which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’ (Case 85/76 Hoffmann-La Roche & Co v Commission EU:C:1979:36, para. 91).

    Not every conduct that effects competitors qualifies as an abuse. The Court of Justice has made clear that ‘competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’ (Case C-209/10 Post Danmark I EU:C:2012:172, para. 22). 

  47. 24.

    What are the general conditions for finding an abuse?

  48. The applicable conditions for determining whether an abuse has occurred depend on the specific type of conduct under investigation. The key element of the analysis is to distinguish between anti-competitive conduct that harms the competitive process and competition on the merits. The Commission therefore must identify conduct that is distinct from competition on the merits and that harms competition.

  49. 25.

    Is there a list of categories of abusive or anti-competitive conduct in the applicable legislation?

  50. Article 102 TFEU lists four examples of abusive conduct:

    • article 102(a): directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
    • article 102(b): limiting production, markets or technical development to the prejudice of consumers;
    • article 102(c): applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; and
    • article 102(d): making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
  51. 26.

    Is this list open or closed?

  52. The list is not exhaustive. The Commission and the EU Court have applied article 102 TFEU to conduct that is not expressly identified in the list of article 102 TFEU. That said, some commentators consider article 102(b) TFEU to express a general principle that must be satisfied by any abuse. 

    For example, unlike many other jurisdictions, measures by a dominant company to impose territorial restrictions on the resale of its goods may be treated as an abuse of dominance (see eg, GSK Greece and the Commission’s recently closed investigation Bulgarian Energy Holdings, following commitments). 

  53. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?

  54. The Commission has published the Guidance Paper, which as noted explains the analytical framework that the Commission applies in abuse cases. The Commission describes the Guidance Paper as setting out only the Commission’s enforcement priorities. But the Guidance Paper arguably binds the Commission by virtue of the principles of legal certainty and legitimate expectations.

  55. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?

  56. Certain categories of conduct are qualified as ‘by nature’ restrictive without the need for a detailed assessment of the conduct’s actual effects (eg, exclusive dealing requirements or discounts conditioned on exclusivity). This is not the same as a per se infringement, however, since the dominant company retains – in theory – the possibility of justifying its conduct (see the response to question 31 below). The response to question 39 addresses what is meant by “exclusivity”.

    The recent judgment of the Court of Justice in Cartes Bancaires has made clear that the concept of ‘by nature’ restrictions must be used with restraint. It can only be applied to conduct that ‘reveals in itself a sufficient degree of harm to competition’, such as to render an examination of its actual effects on the market ‘redundant’ (Case C-67/13 Groupement des Cartes Bancaires, judgment of 11 September 2014, para. 58). This was confirmed by the judgment in Maxima Latvija (Case C-345/14, judgment of 26 November 2015, ¶¶18-23). 

  57. 29.

    To the extent that anti-competitive effects need to be shown what is the standard to demonstrate these effects?

  58. Outside the narrow exception of conduct that is by nature restrictive, the Commission must conduct a full effects analysis. While the Commission need not show that competition is eliminated, it has an ‘obligation to prove the actual effects on the market’ (Case C-67/13 Groupement des Cartes Bancaires, judgment of 11 September 2014, para. 58). This includes an assessment of the counterfactual scenario (Case T-491/07 CB v Commission, ECLI:EU:T:2016:379, ¶111; Guidance on the Commission's enforcement priorities in applying article 82 of the EC Treaty, [2009] OJ /C 45/902, ¶21). 

    If the conduct at issue has been ongoing for some time, an inability to demonstrate substantial and systematic anti-competitive effects will generally contradict a theory that the conduct restricts competition:

    • In Post Danmark I, the Court considered it relevant that the complainant had “managed to maintain its distribution network despite losing the volume of mail related to the three customers involved and managed, in 2007, to win back” two customers, despite the alleged exclusionary conduct starting several years earlier (Case C-209/10 Post Danmark, ECLI:EU:C:2012:172, ¶39).
    • In Streetmap v. Google before the High Court of England and Wales, the alleged abuse had taken place over the course of several years. Roth J considered a review of actual effects “a very relevant consideration,” stating “I would find it difficult in practical terms to reconcile a finding that conduct had no anti-competitive effect at all with a conclusion that it was nonetheless reasonably likely to have such an effect” (Streetmap v.Google [2016] EWHC 253 (Ch), ¶90).

    EU law has a distinct approach to assess rebates that are not conditioned on exclusivity (in respect of which, see the response to Question 39) or quantity alone (which are presumptively lawful). Rebates falling outside these categories require an analysis of all relevant circumstances to assess whether they are capable of (i) making market entry very difficult or impossible for competitors, and (ii) making it more difficult or impossible for purchasers to choose their sources of supply or commercial partners (Case C‑23/14 Post Danmark I ECLI:EU:C:2015:651, ¶31).  In other words, to assess whether rebates are “loyalty inducing”.

    Relevant circumstances include whether the rebates are retroactive, whether they are individualised or standardised, and the length of the reference period.  In previous cases, rebates have been treated as “loyalty inducing” if the dominant company leverages a “non-contestable” portion of demand to prevent rivals from competing for the “contestable share” (Case C‑23/14 Post Danmark I ECLI:EU:C:2015:651, ¶¶32-33 and 35; C‑95/04 P British Airways v Commission EU:C:2007:166, ¶73).

  59. 30.

    Does the abusive conduct need to harm consumers?

  60. EU competition law does not serve to protect individual competitors, but the competitive process. If harm to the competitive process is demonstrated, the case law generally assumes that this harms consumers without need to prove separately consumer harm.

  61. 31.

    What defences are there to allegations of abuses of monopoly power?

  62. The Commission bears the burden of proving that the company under investigation holds a dominant position and that the conduct at issue is, in principle, abusive. The company under investigation is given the ability to challenge allegations of abuse, both informally during the initial stages of an investigation and formally in response to a statement of objections. The company under investigation can point out deficiencies in the factual and legal reasoning that underpins a concern and it can invoke evidence that contradicts or casts doubt on allegations of abuse.

    In addition, the company under investigation can also invoke objective justifications for its conduct. The company must substantiate an objective justification. It is then for the Commission ‘to show that the arguments and evidence relied on by the undertaking cannot prevail and, accordingly, that the justification put forward cannot be accepted’ (Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 688). 

  63. 32.

    Can abusive conduct be objectively justified?

  64. Yes, even if conduct is found to restrict competition, it is in principle open to justification, as described in more detail below under question 33. 

  65. 33.

    What objective justifications have been successful?

  66. The Commission’s Guidance Paper notes that restrictive conduct may be justified if it is either (i) ‘objectively necessary’ or (ii) produces efficiencies that outweigh the restrictive effects. The case law of the EU Courts however does not limit justifications in this way. The Courts have more generally held that a dominant company may justify its conduct based on ‘legitimate commercial interests’ (Case 27/76 United Brands EU:C:1978:22, paras. 189–191).

    In GSK Greece, for example, the Court of Justice recognised that it was legitimate for a dominant company not to meet orders that went beyond ordinary levels of supply, even if such limitations were intended to restrict parallel trade. And in Motorola and Samsung, the Commission accepted that it is legitimate for a holder of standard essential patents to seek injunctions against patent users that do not qualify as willing licensees. The same principle was recently confirmed by the Court of Justice in Huawei v ZTE.

  67. 34.

    How is the burden of proof distributed in an abuse analysis?

  68. The Commission bears the burden of proving the constituent elements of an abuse (article 2 of Council Regulation 1/2003). And it must prove them beyond reasonable doubt (Case T-321/05 AstraZeneca EU:T:2010:266, para 839). The company under investigation bears the burden of demonstrating the existence of objective justifications. But once the company has substantiated a justification, it is for the Commission to show that the justification cannot outweigh the identified restrictions.

  69. 35.

    What are the legal conditions to establish an abusive tie?

  70. The following conditions must be satisfied in order for a tie to be abusive (Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 859):

    • the tying and tied goods are two separate products;
    • the undertaking concerned is dominant in the tying product market;
    • customers have no choice but to obtain both products together (either as a result of a contractual requirement to purchase both products together, or as a result of the products being technically tied);
    • the tying forecloses competition; and
    • there is no objective and proportionate justification for the tie.

    Whether two components constitute separate products or an integrated whole may depend on several factors, such as the functionality of the components at issue, whether the components are included at different levels of the supply chain (see, in contrast, Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 904), whether independent providers supply the tied components to end users (Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 927), and changes in customer habits or technical developments (Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 913).

    A dominant company may achieve the same effect as tying by ostensibly offering a stand-alone version of the dominant tying product alongside a bundled version, but at a price that renders it commercially unrealistic for customers to take the stand-alone version. Past cases have condemned the grant of discounts on dominant products that are conditioned on customers also taking non-dominant products (see, for example Case 85/76 Hoffmann-La Roche & Co. v Commission EU:C:1979:36). In the Guidance Paper, the Commission takes the position that such bundled discounts must be assessed by allocating the discounts fully to the price of the non-dominant ‘tied’ product. If such a calculation results in a price below the dominant company’s long run average incremental costs of supplying the ‘tied’ product, the discount is anti-competitive (unless rivals are able to replicate the bundle) (Guidance Paper, para. 60).

  71. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?

  72. As a general rule, companies, including dominant companies, are free to decide whether to deal with a counterparty. A refusal by a dominant undertaking to supply its products can therefore amount to an abuse under article 102 TFEU only in exceptional circumstances. According to established case law, the following general conditions must be met for a refusal to be abusive (see, for example, Case C-7/97 Oscar Bronner v Mediaprint EU:C:1998:569; and Case T-374/94 European Night Services EU:T:1998:198):

    • the requested input must be indispensable to compete viably in the downstream market;
    • the refusal is likely to eliminate all effective competition in the downstream market; and
    • there is no objective justification for the refusal.

    If the refusal involves intellectual property rights (ie, a refusal to license) it is moreover necessary to demonstrate that the refusal would prevent the emergence of a new product or would hinder technical development and innovation more generally (see, for example, Case T-201/04 Microsoft v Commission EU:T:2007:289, para. 332; Case C-418/01 IMS Health v NDC Health EU:C:2004:257, para. 52; and Case C-241/91 P RTE & ITP v Commission EU:C:1995:98, paras. 50–56).

    The refusal to supply can be express or ‘constructive’ (for example by insisting on unreasonable conditions: Guidance Paper, para. 79).

  73. 37.

    Do these abuses require an essential facility?

  74. Refusal to supply or refusal to license cases require that supply or access is ‘indispensable’. In cases involving access to networks, such as distribution systems, the indispensable input has been described as an ‘essential facility’ (see, for example, Case C-7/97 Oscar Bronner v Mediaprint EU:C:1998:569, para. 24). However, in cases concerning access to know-how or intellectual property, the term essential facility is not always used (see, for example, Case T-201/04 Microsoft v Commission EU:T:2007:289). This is largely a question of semantics, as indispensability remains the key criterion in refusal to supply or license cases.

  75. 38.

    What is the test for an essential facility?

  76. Indispensability implies that the input in question is essential for a commercially viable business to compete on the downstream market. The test is therefore whether a substitute input is available (even if less economically advantageous: see Case C-7/97 Oscar Bronner v Mediaprint EU:C:1998:569, para. 43) and, if not, whether a substitute is impossible or extremely difficult to create.

    This test has been expressed in the case law by assessing whether there are ‘technical, legal or economic obstacles capable of making it impossible or at least unreasonably difficult’ to create alternatives, or to create them within a reasonable timeframe (See Case C-418/01 IMS Health v NDC Health EU:C:2004:257, para. 28; Case T-374/94 European Night Services EU:T:1998:198, para. 209. See also and Guidance Paper, para. 83). The feasibility of creating an alternative is assessed by reference to a (hypothetical) downstream competitor with output comparable to that of the owner of the essential facility; the fact that a downstream competitor’s small output would render it unfeasible to create an alternative does not prove indispensability (Case C-7/97 Oscar Bronner v Mediaprint EU:C:1998:569, para. 46). 

  77. 39.

    What is the test for exclusivity arrangements?

  78. An exclusive purchasing obligation requires a customer to purchase all or a large majority of its needs for a specific product from one supplier. The purchaser may be obliged “to obtain all or most of their requirements exclusively” from the dominant undertaking, or this could be set as a condition for receiving a rebate (T-286/09 Intel v Commission EU:T:2014:547, paras. 72-73).

    Exclusivity arrangements are treated as restricting competition by their very nature and therefore do not require proof of actual restrictive effects. That said this qualification is arguably subject to limitations. It is based on the assumption that exclusivity arrangements allow a dominant company to leverage a non-contestable portion of demand (Case T-286/09 Intel, judgment of 12 June 2014, paras 92–93). If a customer’s full demand is contestable this assumption does not hold and there is no basis for qualifying an exclusivity arrangement as by nature restrictive. This can be the case, for example, where a customer arranges a tender for its entire demand.

  79. 40.

    What is the test for predatory pricing?

  80. Predatory pricing arises when a dominant company prices its products below costs such that even equally efficient competitors cannot viably remain on the market.

    In AKZO, the ECJ established a two-test rule for the assessment of predatory pricing conduct under article 102 TFEU (Case C-62/86 AKZO Chemie v Commission EU:C:1991:286): (i) pricing below average variable cost (AVC) is presumptively abusive; and (ii) pricing below average total cost (ATC) but above AVC is abusive if it is shown that this is part of a plan to eliminate a competitor. This is in line with the principle of profit sacrifice set out in the Guidance Paper (ie, the dominant company deliberately foregoes profits in the short term so as to foreclose competitors with a view to strengthening market power) (Guidance Paper, paras. 64–66).

    There may be cases where alternative benchmarks, such as average incremental costs, are more appropriate, if, for example, an industry is characterised by high fixed costs and very low variable costs (Case 209/10 Post Danmark I EU:C:2012:172, para. 33).

  81. 41.

    What is the test for a margin squeeze?

  82. A margin squeeze occurs when a vertically integrated company sells an input to its downstream competitors at a high price and at the same time prices its own downstream product at a low price such that its competitors are left with insufficient margin to compete viably in the downstream market. This is abusive in EU law when ‘the difference between the retail price charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (see T-271/03 Deutsche Telekom v Commission, upheld on appeal; and C-52/09 TeliaSonera EU:C:2011:83).

    Until recently, margin squeeze cases were generally viewed as instances of a constructive refusal to supply. However, the EU Court’s judgments in TeliaSonera and Telefónica (Case C-295/12 P, EU:C:2014:2062) have held that it is not necessary to establish the legal conditions for an abusive refusal to supply in such cases. Rather, these judgments appear to treat margin squeeze practices as akin to predatory pricing behaviour.

  83. 42.

    What is the test for exclusionary discounts?

  84. While the grant of discounts is generally pro-competitive, certain forms of discounts may constitute an abuse if applied by a dominant company. This includes discounts that are conditioned on exclusivity and retroactive rebates that pay out discounts on past purchases over a reference period if the customer meets pre-defined quantity targets.

    Case law treats exclusivity discounts as abusive ‘by their very nature’, without the need to examine actual effects (See C-549/10 P Tomra v Commission EU:C:2012:221; and T-286/09 Intel v Commission EU:T:2014:547, para. 85). Similarly, retroactive volume discounts are in principle treated as ‘by nature’ restrictive (although see the response to question 29). The assumption is that such discount schemes enable the dominant company to leverage non-contestable portions of demand and raise rivals' costs by forcing them to compensate customers for lost discounts on units that the rival will not sell. 

  85. 43.

    Are exploitative abuses also considered and what is the test for these abuses?

  86. Exploitative abuse, such as excessive pricing, falls within the scope of article 102(a) TFEU, which provides that an abuse may consist of ‘directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions’. 

    In United Brands the ECJ annulled the Commission’s decision that unfair prices had been charged for Chiquita bananas in Germany, Denmark and Benelux since the difference in prices between branded Chiquita bananas and non-branded bananas was not deemed to be excessive (Case C-27/76, EU:C:1978:22, paras. 248–268). In Scandlines Sverige, the Commission set out what it considers the most appropriate methodology for assessing unfair prices. The questions to be determined are: (i) whether the difference between the costs actually incurred and the price actually charged is excessive; and, if the answer to that is yes, then (ii) whether a price has been imposed that is either unfair in itself or when compared to the price of competing products (Case COMP/36.568 Scandlines Sverige v Port of Helsingborg, Commission decision of 23 July 2004, paragraph 147).

    The difficulty of determining a benchmark against which prices can be assessed as being unfair has led to a dearth of decisional practice.  That said, certain national competition authorities continue to investigate excessive pricing at the Member State level (see eg, the UK’s Competition and Markets Authority investigation of Pfizer and Flynn Pharma’s pricing of phenytoin sodium capsules (Case CE/9742-13)).  Concerns relating to price gouging also influence FRAND licensing obligations in EU cases concerning Standard Essential Patents (as discussed in Case C‑170/13 Huawei v. ZTE EU:C:2015:477, Case COMP/39.939 Samsung, Commission decision of 29 April  2014, and Case COMP/39.985 Motorola, Commission decision of 29 April 2014).

  87. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?

  88. In principle, unlawful discrimination pursuant to article 102(c) TFEU may arise if a dominant company applies different terms to different customers for equivalent transactions. But such abusive ‘price discrimination’ requires proof that: (i) similar situations are being treated in a dissimilar manner without legitimate commercial reasons; and (ii) that some customers are placed at a ‘competitive disadvantage’ relative to other customers to such a degree that it creates a risk of foreclosing equally efficient competitors.

    Not every difference in treatment is discriminatory. As a general matter, the EU Courts have recognised that differences arising from individual negotiations of terms can be explained by legitimate commercial reasons (Case C-322/82 Michelin v Commission EU:C:1983:313, para. 90). Other considerations that may be taken into account include, for example, whether the transactions involve similar products (see, for example, Case T-301/04 Clearstream v Commission EU:T:2009:317, paras. 179–180), costs (see, for example, Case T-301/04 Clearstream v Commission EU:T:2009:317, paras. 181–190) or timing (see, for example, Case IV/28.841 ABG/Oil Companies, Commission decision of 19 April 1977). Moreover, even if there is ‘discrimination’, the ECJ’s Post Danmark judgment has made clear that such discrimination is only abusive if it is liable to foreclose equally efficient companies (Case 209/10 Post Danmark EU:C:2012:172, para. 30).

    As a general matter, ‘pure’ discrimination cases are rare. In past cases, discrimination-type concerns have typically been raised as an ‘added’ consideration in connection with abusive exclusionary practices, such as refusal to supply (see, for example, Case T-301/04 Clearstream v Commission EU:T:2009:317).

  89. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?

  90. Yes, unilateral conduct falls under the scope of EU competition law only if the company at issue is dominant. Some EU member states, however, have unilateral conduct rules that also apply to non-dominant companies (eg, Germany).

  91. 46.

    Must the monopoly power exist in the same market where the effects of the anti-competitive conduct are felt?

  92. There is no general requirement that dominance and anti-competitive effects arise in the same market. Indeed, for certain types of abuse, the opposite is true. For example, in the case of tying and bundling, refusal to supply, margin squeeze, and discrimination the effects arise in a different market from the one in which the company is dominant.

    Sanctions and remedies

  93. 47.

    What sanctions can the competition authority impose or recommend?

  94. In principle, the Commission can impose a fine of up to 10 per cent of a company’s total turnover of the preceding business year for infringements of article 102 TFEU.

  95. 48.

    How are fines calculated for abuses of monopoly power?

  96. The Commission has set out the methodology by which it sets fines in its Fining Guidelines (Guidelines on the method of setting fines imposed pursuant to article 23(2)(a) of Regulation No. 1/2003, OJ C 210, 1 September 2006). The Commission takes into account, inter alia, the nature, length and scope of the infringement, the value of sales of goods affected by the infringement, and whether there are aggravating or mitigating circumstances.

  97. 49.

    What is the highest fine imposed for an abuse of monopoly power?

  98. The Commission imposed its highest ever fine on Intel, amounting to €1.06 billion (approximately 4 per cent of turnover) (Case COMP/37990 Intel, Commission decision of 13 May 2009). 

  99. 50.

    What is the average fine imposed over the past five years?

  100. In the past five years the Commission has issued four article 102 TFEU infringement decisions, imposing average fines of €42,463,799. These include:

    • Case COMP/39525 Telekom Polska, Commission decision of 22 June 2011 (fine of €127,554,194);
    • Case COMP/39612 Perindopril (Servier), Commission decision of 9 July 2014 (fine of €1,270,000 in respect of breach of article 102 TFEU; separate fines were imposed in respect of article 101 TFEU. Note that the decision is under appeal).
    • Case COMP/39984 OPCOM/Romanian Power Exchange, Commission decision of 5 March 2014 (fine of €1,031,000);
    • and Case COMP/39985 Motorola, Commission decision of 29 April 2014 (no fine imposed since there was no previous decisional practice or case law on the issue at EU level, and national courts had reached differing conclusions). 
  101. 51.

    Can the competition authority impose behavioural remedies?

  102. Yes, see for details the response to questions 52 and 53 below. 

  103. 52.

    Can it impose both negative and positive behavioural obligations?

  104. Yes. Typically, an infringement decision will include a negative order to bring the infringing conduct to an end. But, if necessary the Commission may also impose positive obligations, notably if the Commission has found an abusive refusal to supply.

  105. 53.

    Can the competition authority impose structural remedies?

  106. Structural remedies are available but are a means of last resort, to be applied only if there is no equally effective behavioural remedy, or if a behavioural remedy would be more burdensome for the dominant company (article 7, Council Regulation 1/2003). Furthermore, structural remedies will generally only be considered proportionate if ‘there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking’ (Recital 12, Council Regulation 1/2003).

  107. 54.

    Can companies offer commitments or informal undertakings to settle concerns?

  108. Commission proceedings can be resolved through the offer of commitments (article 9(1) Regulation 1/2003). Negotiation of commitments can take place both prior to adoption of a Statement of Objections (SO) or following an SO and the filing of a response. If the Commission considers the offered commitments to be acceptable, it will subject them to a public market test and, if confirmed, make them binding through adoption of a decision under article 9 of Regulation 1/2003. Such a decision involves no finding of infringement and entails no fines.

  109. 55.

    What proportion of cases have been settled in the past five years?

  110. Since 1 September 2010, the Commission has closed 15 investigations on the basis of commitments, compared to five (non-cartel) infringement decisions.

  111. 56.

    Have there been any successful actions by private claimants?

  112. Actions for damages take place in the courts of member states, the most popular fora for such actions being Germany, the Netherlands and the United Kingdom. At the EU level, Directive 2014/104, which member states are obliged to transpose into national law by 27 December 2016, harmonises certain rules concerning, inter alia, disclosure, proof of infringements, and limitation periods.

    Appeals

  113. 57.

    Can a company appeal a finding of abuse?

  114. Yes, infringement decisions of the Commission can be appealed to the General Court and subsequently to the Court of Justice.

  115. 58.

    Which fora have jurisdiction to hear challenges?

  116. Decisions of the Commission can be challenged before the General Court on points of facts and law. A subsequent appeal can be made to the Court of Justice on points of law only.

  117. 59.

    What are the grounds for challenge?

  118. The grounds for challenging a decision of the Commission before the General Court include errors of fact, errors of law, and manifest errors of appraisal. In addition, under article 31 of Regulation 1/2003, the General Court has ‘unlimited jurisdiction’ to ‘review decisions whereby the Commission has fixed a fine or penalty payment; it may cancel, reduce or increase the fine or penalty payment imposed’. Thus, ‘in addition to carrying out a mere review of the lawfulness of the penalty [the General Court has jurisdiction] to substitute their own appraisal for the Commission’s’ (Case C-272/09 P KME Germany v Commission EU:C:2011:810, para 103.

  119. 60.

    How likely are appeals to succeed?

  120. The likelihood of a successful appeal depends on the underlying procedural propriety and substantive merits of the Commission’s investigation and decision. Questions have been raised, however, as to the intensity of review exercised by the EU courts in practice, and whether it ought to be strengthened.

    Topical issues

  121. 61.

    Summarise the main abuse cases of the last year in your jurisdiction.

  122. The main abuse case that has been concluded in the last year is Post Danmark II. The case concerned a series of rebates offered by Post Danmark on delivery of advertising mail. These rebates were retroactive and applied to mail services purchased during the course of a year.  On a preliminary reference from the Danish appellate tribunal, the Court of Justice delineated the different antitrust assessment applicable to exclusivity rebates, pure quantity rebates, and potentially loyalty-inducing rebates. It identified the circumstances in which the latter category may infringe article 102, as discussed in response to question 29. 

    There are several ongoing cases of interest under article 102 TFEU, including:

    • appeals in the Servier case, concerning patent litigation settlements which were alleged to delay the entry of generic drugs into the market;
    • Intel’s pending appeal before the Court of Justice, which relates to the legal standard that should be applied to discounts that are conditioned on exclusivity;
    • the Commission’s investigation into Gazprom’s alleged practices of restricting the trade in gas across member state borders, linking gas prices to oil prices, and leveraging market power to obtain commitments relating to gas supply infrastructure;
    • the Commission’s investigation of Google’s search result designs, Google’s advertising practices, and the Android Operating System;
    • the Commission’s investigation into Qualcomm’s alleged bundling and predatory pricing in respect of its chipset products; 
    • the Commission’s investigation into Amazon’s alleged practices of requiring publishers to inform it of (or offer it) more favourable terms granted to competing distributors of e-books; and
    • The Commission’s investigation into whether the International Skating Union (ISU) has abused a dominant position by imposing bans on athletes and officials who participate in events not specifically approved by the ISU.
  123. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?

  124. The application of article 102 TFEU in the area of standard essential patents will likely remain a relevant topic, despite the judgment in Huawei and the Commission’s Motorola and Samsung decisions. While these cases have defined a framework for seeking injunctions based on standard essential patents a key question that remains open is how FRAND terms for patent licences should be determined.

    Another question that remains subject to considerable debate is to what extent conditional discounts, including exclusivity discounts, should be subject to an effects analysis. While the General Court in Intel confirmed a form-based approach that treats exclusivity discounts as by nature restrictive, the matter is on appeal before the Court of Justice. Moreover, the conduct at issue in that case took place before the Commission adopted its Guidance Paper, which takes a more economic approach to the analysis of discounting practices. It therefore remains to be seen how the Commission will deal with these practices going forward. The assessment of potentially loyalty-inducing rebates will also remain a subject of controversy following the judgment in Post Danmark II.

    Finally, the Commission’s pending investigation of Google’s search service raises important questions about the standard that should govern the application of article 102 to product design decisions in the online space. Overly restrictive intervention in this area could risk creating legal uncertainty and deter future innovation. The same is true of its assessment of Google’s advertising practices and the Android operating system. 

  125. 63.

    Are there any sectors that the competition authority is keeping a close eye on?

  126. Industry sectors that have been the subject of particular activity in the area of article 102 TFEU over the recent past include the energy, telecommunications, and technology sectors. The Commission has also continued a sectoral investigation into e-commerce and its investigations into alleged geo-blocking in Pay TV.

  127. 64.

    What future developments can we expect?

  128. The Court of Justice’s recent Cartes Bancaires judgment has made clear that there are limits to a form based approach to the application of EU competition rules that ignores actual effects. As the Advocate General in that case noted such an approach risks producing decisions that are ‘purely theoretical and abstract’. While the Cartes Bancaires judgment was rendered under article 101 TFEU the same considerations also apply to article 102 TFEU. It is therefore hoped that, outside some narrow and well defined exceptions, article 102 TFEU decisions going forward will be based on a comprehensive and rigorous analysis of the competitive effects of the conduct at issue.

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Questions

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?


  2. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?


  3. Monopoly power

  4. 3.

    What role does market definition play in market power assessment?


  5. 4.

    What is the approach to market definition?


  6. 5.

    How is market power or monopoly power defined?


  7. 6.

    What is the test for finding of monopoly power?


  8. 7.

    Is this test set out in statute or case law?


  9. 8.

    What role do market shares play in the assessment of monopoly power?


  10. 9.

    Are there defined market share thresholds for a presumption of monopoly power?


  11. 10.

    How easily are presumptions rebutted?


  12. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?


  13. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?


  14. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?


  15. 14.

    Can the lack of entry barriers negate a finding of monopoly power?


  16. 15.

    What kind of barriers to entry are typically considered in the analysis?


  17. 16.

    Can countervailing buyer power negate a finding of monopoly power?


  18. 17.

    What if consumers can easily switch between suppliers?


  19. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?


  20. 19.

    Are any entities or sectors exempt from the antimonopoly regime?


  21. 20.

    Can companies be deemed to hold collective monopoly power?


  22. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?


  23. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?


  24. Abuse of monopoly power

  25. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?


  26. 24.

    What are the general conditions for finding an abuse?


  27. 25.

    Is there a list of categories of abusive or anti-competitive conduct in the applicable legislation?


  28. 26.

    Is this list open or closed?


  29. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?


  30. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?


  31. 29.

    To the extent that anti-competitive effects need to be shown what is the standard to demonstrate these effects?


  32. 30.

    Does the abusive conduct need to harm consumers?


  33. 31.

    What defences are there to allegations of abuses of monopoly power?


  34. 32.

    Can abusive conduct be objectively justified?


  35. 33.

    What objective justifications have been successful?


  36. 34.

    How is the burden of proof distributed in an abuse analysis?


  37. 35.

    What are the legal conditions to establish an abusive tie?


  38. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?


  39. 37.

    Do these abuses require an essential facility?


  40. 38.

    What is the test for an essential facility?


  41. 39.

    What is the test for exclusivity arrangements?


  42. 40.

    What is the test for predatory pricing?


  43. 41.

    What is the test for a margin squeeze?


  44. 42.

    What is the test for exclusionary discounts?


  45. 43.

    Are exploitative abuses also considered and what is the test for these abuses?


  46. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?


  47. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?


  48. 46.

    Must the monopoly power exist in the same market where the effects of the anti-competitive conduct are felt?


  49. Sanctions and remedies

  50. 47.

    What sanctions can the competition authority impose or recommend?


  51. 48.

    How are fines calculated for abuses of monopoly power?


  52. 49.

    What is the highest fine imposed for an abuse of monopoly power?


  53. 50.

    What is the average fine imposed over the past five years?


  54. 51.

    Can the competition authority impose behavioural remedies?


  55. 52.

    Can it impose both negative and positive behavioural obligations?


  56. 53.

    Can the competition authority impose structural remedies?


  57. 54.

    Can companies offer commitments or informal undertakings to settle concerns?


  58. 55.

    What proportion of cases have been settled in the past five years?


  59. 56.

    Have there been any successful actions by private claimants?


  60. Appeals

  61. 57.

    Can a company appeal a finding of abuse?


  62. 58.

    Which fora have jurisdiction to hear challenges?


  63. 59.

    What are the grounds for challenge?


  64. 60.

    How likely are appeals to succeed?


  65. Topical issues

  66. 61.

    Summarise the main abuse cases of the last year in your jurisdiction.


  67. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?


  68. 63.

    Are there any sectors that the competition authority is keeping a close eye on?


  69. 64.

    What future developments can we expect?